A Sole Proprietor and an Individual with NO Business Form a Partnership

Espanol Operated a specialty shop that sold fishing equipment and accessories. post-closing trial balance on Dec. 31) 2007 is as follows:

Fish R Us
Post Closing Trial Balance
December 31, 2007

Cash 36,000
Accounts Receivable 150,000
Allowance for Uncollectible Accounts 16,000
Inventory 440,000
Equipment 135,000
Accumulated Depreciation 75,000
Accounts Payable 30,000
Espanol, Capital 640,000
Total 761,000 761,000

Espanol plans to enter into a partnership with trusted associate, Quino, effective Jan. 1, 2008. Profits or losses will be shared equally. Espanol is to transfer all assets
and liabilities of her shop to the partnership after revaluation.

Quino will invest cash equal to Espanol’s investment after revaluation. The agreed values are as follows: accounts receivable (net), P140,OOO; inventory, P460,OOO;
and equipment (net), P124,OOO, The partnership will' operate under the business name of Fish R Us.

Required:
1 Prepare the opening journal entries in the books of the partnership.
2 Prepare the partnership’s statement of financial position as at the date of formation of the partnership.

Fish R Us Books of Espanol Books of the Partnership

Post Closing Trial Balance ((1))
December 31, 2007 Cash 36,000
Allowance for Uncollectible Accounts 6,000 Accounts Receivable 150,000
Cash 36,000 Inventory 20,000 Inventory 460,000
Accounts Receivable 150,000 Accumulated Depreciation 64,000 Equipment 124,000
Allowance for Uncollectible Accounts 16,000 Espanol, Capital 90,000 Allowance for Uncollectible Accounts 10,000
Inventory 440,000 To record adjustments in assets Accounts Payable 30,000
Equipment 135,000 Espanol, Capital 730,000
Accumulated Depreciation 75,000 Fish R Us To record investment of Espanol
Accounts Payable 30,000 Adjusted Trial Balance
Espanol, Capital 640,000 December 31, 2007 Cash 730,000
Total 761,000 761,000 Quino Capital 730,000
Cash 36,000 To record investment of Quino
Adjustments Accounts Receivable 150,000
Agreed per books Inc./(dec.) Allowance for Uncollectible Accounts 10,000 Fish R Us
Accounts Receivable, net 140,000 134,000 6,000 Inventory 460,000 Statement of Financial Position
Inventory 460,000 440,000 20,000 Equipment 135,000 Jan. 1, 2008
Equipment, net 124,000 60,000 64,000 Accumulated Depreciation 11,000
Accounts Payable 30,000 Assets
Adjusting Entries Espanol, Capital 730,000 Cash 766,000
Total 781,000 781,000 Accounts Receivable 150,000
Allowance for Uncollectible Accounts 6,000 Allowance for Uncollectible Accounts - 10,000 140,000
Espanol, Capital 6,000 ((2)) Inventory 460,000
Equipment 124,000
Inventory 20,000 Allowance for Uncollectible Accounts 10,000 Total Assets 1,490,000
Espanol, Capital 20,000 Accumulated Depreciation 11,000
Accounts Payable 30,000 Liabilities
Accumulated Depreciation 64,000 Espanol, Capital 730,000 Accounts Payable 30,000
Espanol, Capital 64,000 Cash 36,000 Espanol, Capital 730,000
Accounts Receivable 150,000 Quino, Capital 730,000
Inventory 460,000 Total 1,490,000
Equipment 135,000
To close the books of Espanol
On October l, 2001, Allan and Irene decide to pool their assets and form a partnership. The firm is to take over business assets and assume business liabilities
and capitals are to be based on net assets transferred after the following adjustments:
1. Irene’s inventory is to be valued at 35,000
2. An allowance for doubtful accounts of 5% is to be established on the accounts receivable of each party.
3. Accrued expenses ofP2,000 are to be recognized on Allan’s books.
4. Irene is to be allowed goodwill of P25,000 and is to invest additional cash so that she will have a 60% interest in the new firm.

                                                                     Allan               Irene

Cash                                                                P 18,750          P 11,250
Accounts Receivable                                       45,000             37,500
Merchandise Inventory                                  40,000             30,000
Equipment                                                      25,000             30,000
Accumulated Depreciation                             ( 11,250)        ( 3,750)
Total Assets                                                   PI 17 500        PI 05 000
Accounts Payable                                           P 34,500          P 25,000
Capital                                                            83,000             80,000
Total Liabilities and Capital                           PI 17 500        P105 000

The books of Irene will be used by the new partnership.

Required:

Give the entries to adjust and close the books of Allan.

Give the entries required on the books of Irene upon the formation of the partnership
Prepare a balance sheet for the firms of Allan and Irene as of October 1

Adjustments Books of the Partnership Buddy N Sol

Buddy Agreement Adjustment Statement of Financial Position
Cash 10,500 10,500 - ((1)) October 31, 200Y
Accounts Receivable 41,600 41,600 - Cash 10,500
Allowance for Doubtful Accounts 2,080 (2,080) Accounts Receivable 41,600 Assets
Merchandise Inventory 89,400 109,950 20,550 Merchandise Inventory 109,950 Cash 69,500
Accounts Payable 40,350 40,350 - Allowance for Doubtful Accounts 2,080 Accounts Receivable 41,600
Accrued Salaries 1,620 (1,620) Accounts Payable 40,350 Allowance for Doubtful Accounts (2,080) 39,520
Buddy, Capital 101,150 118,000 16,850 Accrued Salaries 1,620 Merchandise Inventory 109,950
Buddy, Capital 118,000 Total Assets 218,970
Books of Buddy To record investment of Buddy
Liabilities and Owner's Equity
Merchandise Inventory 20,550 Buddy's Investment 118,000 x3/2 Accounts Payable 40,350
Allowance for Doubtful Accounts 2,080 Interest 2/3 Accrues Salaries 1,620
Accrued Salaries 1,620 Total Partnership Capital 177,000 x1/3 Total Liabilities 41,970
Buddy, Capital 16,850 Sol's interest in the Partnership 1/3 Buddy, Capital 118,000
To record adjustments in Buddy's Capital Sol's cash investment 59,000 Sol, Capital 59,000
Total Owner's Equity 177,000
Buddy Capital 118,000 Total liabilities and owner's equity 218,970
Allowance for Doubtful Accounts 2,080 ((2))
Accounts Payable 40,350 Cash 59,000
Accrued Salaries 1,620 Sol, Capital 59,000
Cash 10,500 To record investment of Sol
Accounts Receivable 41,600
Merchandise Inventory 109,950
To close the books of Buddy
 Allan Agreement Adjustment Allan's net investment 78,750 Allan and Irene Partnership
Cash 18,750 18,750 Divide by Allans Partnership Interest 40% Statement of Financial Position
Acccounts Receivable 45,000 45,000 Implied Partnership Valuation 196,875 October 1, 2001
Allowance for Doubtful Accounts (2,250) (2,250) x Irene's Partnership Interest 60%
Merchandise Inventory 40,000 40,000 Irene's net investment 118,125 Assets
Equipment 25,000 25,000 Irene's adjusted capital before cash investment Cash 40,000
Acc. Depreciation (11,250) (11,250) Irene, Capital 80,000 Accounts Receivable 82,500
Total Assets 117,500 115,250 (2,250) Allowance for Doubtful Accounts (1,875) Allowance for Doubtful Accounts (4,125) 78,375
Merchandise Inventory 5,000 Merchandise Inventory 75,000
Accounts Payable 34,500 34,500 Goodwill 25,000 108,125 Equipment 40,000
Accrued Expenses 2,000 2,000 Additional cash investment 10,000 Goodwill 25,000
Allan, Capital 83,000 78,750 (4,250) Total Assets 258,375
Total Liabilities and Capital 117,500 115,250 (2,250) Irene's Book/Partnership Books
Liabilities and Owner's Equity
Allan's Book Merchandise Inventory 5,000 Accounts Payable 59,500
Goodwill 25,000 Accrued Expenses 2,000
Allan, Capital 4,250 Allowance for Doubtful Accounts 2,875 Total Liabilities 61,500
Allowance for Doubtful Accounts 2,250 Irene, Capital 28,125
Accrued Expenses 2,000 To record adjustments in Irene's books Allan, Capital 78,750
To record adjustments in Allan's books Irene, Capital 118,125
Cash 10,000 Total Owner's Equity 196,875
Allowance for Doubtful Accounts 2,250 Irene, Capital 10,000
Accumulated Depreciation 11,250 To record Irene's additional investment Total Liabilities and Owner's Equity 258,375
Accounts Payable 34,500
Accrued Expenses 2,000
Allan, Capital 78,750 Cash 18,750
Cash 18,750 Acccounts Receivable 45,000
Accounts Receivable 45,000 Merchandise Inventory 40,000
Merchandise Inventory 40,000 Equipment 13,750
Equipment 25,000 Allowance for Doubtful Accounts 2,250
To close Allan's Books Accounts Payable 34,500
Accrued Expenses 2,000
Allan, Capital 78,750
To record Allan's investment